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7 Lessons to Raise Your Kids as Good Entrepreneurs—Not Good Employees

G. Brian Davis
8 min read
7 Lessons to Raise Your Kids as Good Entrepreneurs—Not Good Employees

What makes a good employee? A good entrepreneur?

Good employees are obedient and willing to work hard at projects given to them by someone else. They accept a cap on their income in exchange for stability, predictability, and routine.

Good entrepreneurs are a different breed altogether. Creativity? Check. Self-discipline and motivation? Check. Independence? Courage to take calculated risks? Ambition to change the world? Check, check, check.

As you raise your children, which character traits do you want to instill in them?

Here’s the thing: Most parents instinctively try to “manage” their children. They try to make them obedient, predictable. They give them an allowance, often tied to chores, and if the kiddos get too “unmanageable,” they give them projects to keep them busy.

In doing so, they raise good employees, who go out into the world ready to be managed by someone else.

Don’t get me wrong—everyone should be an employee at times in their life. Sometimes you need the skills, the network, the money, or the experience that best comes from working for an established employer.

But some parents raise their children with a different mindset, an extra toolkit. These children grow up to be movers and shakers, and while they may work for others at times, it’s part of a greater picture in their life goals.

If you want to raise your kids to be good entrepreneurs, not just good worker bees, here are seven steps to prepare them for great things!

7 Lessons to Raise Your Kids as Good Entrepreneurs—Not Good Employees

1. Start with budgeting. | Ages 6-8

Most adults struggle with budgeting, yet a six-year-old can manage a budget if taught properly.

Why do most adults struggle? Because no one taught them how to do it properly.

Parents mess this up in all kinds of ways, but the most common is that they miss the most important piece: expenses. Budgets come with two columns, revenue and expenses.

And guess what? Revenue is the easy, fun part. Managing expenses and savings, on the other hand, proves a little messier.

Most parents just give their kids an allowance and call it a day. But if you want to teach kids budgeting lessons that are useful in the real world, you need to impose real-world expenses on your children—housing expenses, food expenses, entertainment expenses, and so on.

“What?! You want me to charge my six-year-old rent?! What kind of monster are you?!”

Imagine the following scenario: You start your child with a $20/month allowance, in exchange for X, Y, and Z chores. Of that, they’ll need to pay you $5/month in rent, $3/month for groceries, and a small percentage of entertainment costs that they request, such as dinners at their favorite restaurant or going out to movies they want to see.

They also must save a bare minimum of 25 percent of their income. Whatever’s left, they can spend as discretionary income. Reinforce the habit to save early and often!

Don’t just deduct the expenses from their allowance, either. Make them pay you separately and specifically for each expense; perhaps different expenses are due at different times of the month.

Budgets have expenses, not just income. If you want your kids to grow up knowing how to manage their money in the real world, you need to teach them with a budget that resembles the real world as closely as possible.


2. Demonstrate the power of ROI. | Ages 8-10

When your children have mastered the science of budgeting, it’s time to show them that their savings is good for something more than just looking pretty on their bank statement. (And they should have bank statements—show them early that money is not green paper but an idea.)

At first, you’ll need to rig their returns to demonstrate a point: When they put their money to work for them, they get more money. And the more money they save and invest, the greater their returns.

Suddenly, instead of 50 to 60 percent of their income going toward expenses, they’ll discover that returns on their investments can cover a big chunk of their expenses. They magically have more money every month! And they didn’t even have to do chores for it!

To make sure they earn a good return, have them invest their money with you as a private note that pays high returns. (Hopefully they’ll also gain a new appreciation for your real estate investments, since their money is now tied up in them!)

After the initial lesson sinks in, phase down the note returns to be more realistic, and have them start investing in real market investments alongside you. Have them invest in low-cost index funds as an easy—and historically effective—investment. You can watch the fluctuations together and talk about why the market moved the way it did.

Still, as important as it is that they start understanding markets, the most critical lesson remains the power of passive income.

3. Constantly push flexibility & mental agility. | All ages

According to one Canadian study, nearly two-thirds of today’s elementary school children will work in jobs that don’t exist yet.

Likewise, many of today’s jobs will no longer exist in 10 to 20 years.

Our children need to grow up with excellent soft skills. They need to know how to work well with others, how to influence those around them tactfully but not rudely or aggressively. They need to know how to communicate persuasively, both verbally and in writing.

Teach what you can about networking, debate, public speaking, critical thinking, logic, negotiation, writing, data analysis, charm, and social graces. Help them find other people and places that can teach them these soft skills—since you can’t teach them everything.

Do whatever you can to encourage and develop their lateral thinking. Lateral thinking is about approaching problems from multiple angles to find effective and creative solutions. You know how corporate types are always waxing on about “thinking outside the box”? That’s lateral thinking, and it will serve your children well over their lifetimes, no matter how the economy or job market evolve.

4. Introduce them to their first venture. | Ages 10-12

Allowance is great for teaching budgeting, but it teaches nothing about entrepreneurship.

When I was a kid, I mowed my neighbors’ lawns for $5 each. No, it wasn’t that long ago, they were small lawns, goshdarnit! OK, maybe it was that long ago.

This is a great first gig, if you live in the right kind of suburban neighborhood. Alternative gigs include walking dogs, babysitting, simple landscaping work, etc. (In fact, you can even tie in your children’s venture with your rental business to earn even more from your rentals!)

Push your kids to do something similar. At first, they’ll complain about working on their weekends, then they’ll discover how much they like the extra money.

And eventually, they’ll start to get bored of the work. This sets them up for the next lesson: leveraging other people’s time and money.

5. Teach them about leverage. | Ages 12+

When your kid is bored of their business venture, you can start nudging them to use a little lateral thinking. Consider this conversation:

“Dad, I’m sick of mowing lawns every Saturday and Sunday morning.”

“Understandable. What are some ways you could cut down on the number of hours you work, while still bringing in the same money?”

“Huh? How’s that even possible?”

“Spend tonight brainstorming ideas, and let’s talk again tomorrow.”

The answer to the riddle is, of course, that they bring on an “employee.” Your child has established a customer base of neighbors whose lawns they mow, and they know what they can expect in revenue each week. Now it’s a matter of finding another child (perhaps slightly younger) who’s willing to work for less.

Congratulations! Your son or daughter just got promoted to manager, who handles sales and marketing but not the actual labor. Even better, they can now expand their enterprise since they are no longer limited by their own time constraints.

Then, they quickly run into another constraint: physical resources. In this case, there’s only one lawnmower.

Your conversation could then turn to “what’s the constraint holding you back from bringing on more customers?” When your child comes up with the answer (equipment—the lawnmower), have them start scouting yard sales and classifieds for used lawnmowers.

Offer to lend them the money for a second lawnmower (with interest) to demonstrate that not only can they leverage other people’s time, but they can even use other people’s money to scale their business.

group of young adults outside looking at a sunset

6. Partner on a real estate investment. | Ages 12+

As we talked about earlier, your kids have already been lending you money as a private note for your real estate investments, right? Well, now it’s time to bring them in as junior partners.

Bring them with you to scout potential investments. Have them show vacant rental units alongside you to potential renters. Explain how cash flow works. Model for them how to raise money, how to manage people and contractors, and how to evaluate risk.

Remember Nakeisha, the single mom whose 12-year-old daughter participates in her property investing and management? What started as the inability to afford a babysitter turned into a family business!

If you’re handy, this is a great opportunity to teach them about home repairs. If not, you can both learn together, giving you even more to bond over.

Your children should have some of their own money in the investment with you, however little. Otherwise, it’s not a partnership; it’s a tagalong.

And when you sell or lease the property, your son or daughter gets their cut. They get to see the fruits of their labor.

You can even invest in properties to help pay for their future college education!

7. Discuss the rules of the tax game. | Ages 16+

One of my favorite movie lines of all time is Walter ranting, “This is not ‘Nam. There are rules!” in The Big Lebowski.

And so there are, Walter. So there are.

Life is filled with rules, but some of the most important that your children need to learn are the rules to winning at the tax game.

It’s hard to succeed if the government takes 50 cents of every dollar you earn. But when you layer on federal, state, and local income taxes, payroll taxes, sales taxes, property taxes, and all the other taxes that slip into your wallet, we end paying a massive percentage of our income to taxes.

Most of us don’t even know it. Here’s a simple example: If you rent, you’re paying property taxes; you just don’t realize it because it’s indirect. Renters actually pay those taxes twice since they end up paying the property taxes themselves and also pay income taxes on that money.

Homeowners, by contrast, at least know they’re paying property taxes and don’t have to pay income tax on that money.

Real estate investors who hold their properties for at least a year pay the lower capital gains tax rate, rather than full income taxes. Many of the costs of owning and improving investment properties are also tax-free. Some exist more as paper losses than real losses, such as depreciation. Property owners can 1031 exchange their profits from one sold property to a new acquisition and postpone taxes indefinitely.

The list goes on and doesn’t just extend to real estate investing. Savvy investors know the rules for limiting their tax liability on everything from stocks to ETFs to private notes.

Who’s going to reach financial independence faster, someone who’s losing 50 percent of their income to their total tax burden or someone who’s only losing 25 percent?

The better your children know the rules of the game, the greater their chances of succeeding.

Leave the Rat Race to Other People’s Children

Most people don’t like their jobs. It’s a sad statistic: 70 percent of Americans feel disengaged from their jobs.

If you want to give your children the means to succeed in tomorrow’s economy, resist the urge to keep them obedient at all times. Embrace it when they (respectfully) question authority and assumptions. Encourage them to think laterally. Help them build skills that will always prove valuable. Teach them everything you know about money, investing, and entrepreneurship.

Remember blacksmiths? Well, OK, I don’t either, but most towns had their own blacksmith in the 1890s. By the 1920s, there were few blacksmiths left in America. The economy had moved on, and instead of jobs for blacksmiths, we suddenly had jobs for car mechanics, car salesmen, car manufacturers, car washers, and so on.

Today’s world is changing much, much faster than the early 1900s. When the robots come for our jobs, your kids will be in a position to not only survive but capitalize on it, rather than lament the loss of yesterday’s jobs.

And that’s the best thing you can offer your children: the agility to succeed no matter what comes down the pike.

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What are you doing to raise your kids to think differently? To be independent, entrepreneurial, ready for a rapidly-changing economy?

Ideas welcome! (Or you could just tell me I should be jailed for proposing that we charge kids rent. That works, too.)

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.